Russian video streaming platforms gain speed

Russian video streaming platforms gain speed
In 2019, Russian online video streaming segment grew by 50% to reach RUB17.1bn ($237.5mn)
By Vladimir Kozlov in Moscow March 19, 2020

As the Russian video streaming service segment is booming. The major players are securing funding and launching original content production.

Last month, Russia’s largest video streaming platform, ivi.ru, said it is considering an IPO on Nasdaq by the end of this year with JP Morgan Chase underwriting the floatation, bne IntelliNews reported in February.

Back in 2018, ivi.ru CEO Oleg Tumanov mentioned the possibility of an IPO in 2020 and the company has been talking about since they gave bne IntelliNews its first ever interview the international media in 2013.

The move would make ivi.ru Russia's first online video service to go public, also making it the segment's highest valued company, worth over $700mn according to analysts quoted by Kommersant.

Launched in 2010, ivi.ru became Eastern Europe's first video service to have licensing deals with all Hollywood majors two years later, following a contract with NBC Universal.

Total investment in ivi.ru to date has not been revealed, but, according to previous reports, investment funds ru-Net and Tiger Global Management and Profmedia group injected $30mn in the project at the launch time, and Baring Vostok, which has made several highly successful tech investments,  added another $40mn in 2011. Last year, another $40mn came from a consortium led by the Russian Direct Investment Fund and United Arab Emirates-based Mubadala.

According to a study by TMT Consulting, published in early March, ivi.ru is responsible for 36% of Russia's online video service segment.

Strong growth

In 2019, Russian online video streaming segment grew by 50% to reach RUB17.1bn ($237.5mn), TMT Consulting's study says, adding that this year, it is likely to grow by another 40%, hitting the RUB24bn ($333mn) mark.

Meanwhile, the segment's business model has been evolving. When the first online video services were launched about 10 years ago, they relied heavily on advertising as the main source of revenue.

However, over the last couple of years, there has been a shift towards subscription revenue, and, last year, the subscription revenue accounted for 59% of the segment's total revenue, for the first time ever exceeding the advertisement revenue.

As the subscription model prevails over the ad model, growth in ad revenue in 2019 was more modest, at 13%, year-on-year, to RUB4.2bn ($58.3mn).

According to TMT Consulting, the main factors driving growth in the online video segment over the last couple of years are increasing numbers of users paying for online video content, higher penetration of smartphones and smart TVs, as well as licensing deals between Russian studios and Hollywood majors. The Russian government's recent efforts aimed at fighting online piracy are apparently paying off, as well.

A recent study by Telecom Daily consulting group reveals that up to 6.5mn of Russians paid for using online video services in 2019. This signifies a major trend of switching from pirated sources of online video to legitimate online streaming services.

Tough competition

Meanwhile, as the online video streaming segment grows, competition is also becoming tougher, especially among smaller players fighting for their piece of the pie.

Last year, the largest online video service, ivi.ru, was followed by Okko, part of the Rambler & Co media group (in which Sberbank holds a 46.5% stake), with a market share of 24%, Megogo (12%), Amediateka (8%) and Tvzavr (5%).

One possible way to stand out among the competitor is by following in the footsteps of Netflix and producing their own content. So far, the list of online video services that have launched or plan producing original content includes START, a relatively new player in the segment, as well as ivi.ru and Okko.

Interest from major techs

Major players in the Russian tech industry have recently established or stepped up their presence in the video streaming segment.

Telecom giant Rostelecom recently launched its own service, Wink. Gazprom Media, the media arm of the natural gas behemoth Gazprom, also runs a streaming service, Gazprom.

Experts say that these services have good potential for growth thanks to their parent companies' resources, but so far, they are still lagging behind the older, independent players.

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